Captains Speak     

Published: December 31, 2024
Updated: December 31, 2024

Escorts Kubota

We plan to double tractor output

“After the disinvestment of its railway business to auto component giant Sona Comstar, Escorts Kubota will concentrate on its prime business segments – agri and construction. At present, Escorts and Kubota hold a combined marketshare of 12-13% and our aim now is to double this share within the next 5 to 6 years.”

Maintaining this at a conference call organized to discuss the company’s performance during Q2FY25, Bharat Madan, Chief Financial Officer, added that a significant part of this growth will be driven by robust product development, expanding the distribution network and launching a new financing company “which will help to strengthen our ecosystem and drive future growth.”

Pointing out that “annual production capacity for tractors stands at present at 1,70,000 units whilst our actual production is around 1,25,000- 1,30,000 units,” Mr Madan added, “We plan to double this capacity with a greenfield manufacturing facility. We presented our intent to the Rajasthan government, but it did not work out. Now we have approached the Uttar Pradesh government and things are moving forward. If the land is allotted to us, we expect to finalise the deal in the next six months.”

EXPORT THRUST

According to Mr Madan, the company will focus on tractor production in the initial phase of the new facility. “Later, we plan to localise Kubota’s engine manufacturing and then expand to the production of construction equipment. With the idea of leveraging Kubota’s global network and using India as a hub for sourcing products and components, the facility will support export initiatives.

If the land acquisition process goes smoothly as planned, we anticipate the new facility to be operational by FY27-28.” Reviewing the company’s performance during Q2FY25, Mr Madan said that during the quarter, net sales (including other operating income) increased 0.44% to Rs 2,488.49 crore. Sales of the agri machinery products segment have gone up 34.81% to Rs 1,896.52 crore (accounting for 76.24% of total sales). Sales of the railway equipment segment fell 9.86% to Rs 211.24 crore (accounting for 8.49% of total sales). Net profit attributable to owners of the company increased 54.01% to Rs 324.23 crore.

According to Mr Madan, in Q2FY25, the margins remained stable due to softening in commodity prices, better product mix and price realization. During the quarter, tractor volumes stood at 25,995 units, down by 0.9% YoY. Construction volume decreased 18.4% YoY to 1,394 units. In H1 FY25, tractor volumes stood at 56,365 units, down by 3.6% YoY. Construction volumes decreased 12.6% YoY to 2,776 units. The company expects the domestic tractor industry to clock mid-single digit growth in H2FY25, supported by rural demand and government initiatives.

MERGER NOD

The National Company Law Tribunal (NCLT), Chandigarh bench has approved the Scheme of Amalgamation of Escorts Kubota India and Kubota Agricultural Machinery India (amalgamating companies) with Escorts Kubota (amalgamated company). In order to reflect the scheme’s impact from the appointed date of April 1, 2023, the company has restated previously reported number.

Maintaining that new product contribution has improved, Mr Madan added that the company expects to launch new tractor models to drive growth. Global tractor OEMs are increasing tractor and component sourcing from India, driven by factors like cost, supply chain resilience, and India’s extensive capabilities in the less-than-70 HP category. Tax expenses for Q2FY25 and H1FY25 include a onetime impact of Rs 91 crore on account of utilization of broughtforward losses of amalgamating companies, along with the impact due to a change in long-term capital gains tax provisions in respect of certain financial assets held by the company.

DULL VOLUMES

In Q2FY25, the company’s domestic tractor volumes increased 0.3% YoY compared to the industry growth of 0.7% YoY. In H1FY25, domestic tractor volumes decreased 2.5% YoY compared to the industry growth of 0.6% YoY. In Q2FY25, export tractor volumes registered a fall of 20.9% compared to the industry degrowth of 5.2%. Exports through the Kubota channel contributed 20% to the total export volume. In H1FY25, the company’s export tractor volumes registered a fall of 24.7% compared to the industry degrowth of 1.8%. In Q2FY25, less than 40 HP contributed 34% to agri machinery sales and greater-than-40 HP contributed 66%. The company had more than 1,550 exclusive dealers for the EKL brand of tractor in India at the end of September 2024. In Q2FY25, railway revenues decreased 9.9% YoY to Rs 211.2 crore. The order book for the railway division, at the end of September 2024, was more than Rs 1,100 crore.

On October 23, 2024, the company entered into a business transfer agreement with Sona BLW Precision Forgings (Sona Comstar) for transferring the existing railway equipment business division (RED) as a going concern, on a slump sale basis, for a lumpsum cash consideration of Rs 1,600 crore, subject to the terms of the agreement. This divestment of RED is subject to customary closing conditions, including the receipt of necessary approvals and permissions. The company attributed the sale to simplifying its operations, capital re-allocation leading to an increase in scale and efficiency of the core business. In Q2FY25, capacity utilization of the EAM segment was around 73% and capacity utilization of the Construction Equipment segment was around 68%. The company allotted 13,79,493 equity shares of Rs 10 each on September 6, 2024, which resulted in an increase in the equity share capital from Rs 110.5 crore to Rs 111.88 crore.